So it’s quite possible that lower gilt yields are more a sign of panic about the economy than sign of credibility about the deficit.
Hmm, interesting idea.
So let\’s have a little look around Europe shall we? In Germany, pretty much everyone is happy with the way the economy is working. They floated some two year paper at 0% last week.
No one\’s very happy with the Spanish economy: ten year yields are 5.5% or so. Italy, no, not happy bunnies with that economy either, ten year yields are what, 6.5%? People are panicking about the Portuguese economy and yields, at least last time I could bring myself to look they were, were 17% odd. I\’m not sure you can manage to work the word happy into a sentence about the Greek economy: I\’m also not entirely certain that it\’s possible to calculate a yield on their bonds using standard mathematics.
So, low interest rates on government debt at present seem to be linked to people being pretty happy about matters economic in that country or to people being in panic about that economy?
Yes, quite, and isn\’t it interesting that Cormac chose the wrong answer?